Technical analysis software is a way of automating the functions associated with technical analysis. Features that are most commonly associated with the use of this type of software are charting, back testing, optimisation, market scanning, alerts, custom indicators, data feed and the ability to interface directly with broker platforms.
Any good software package will have the ability to create charts. A chart is basically just a way to present movements in the price or trading volumes of a stock/currency/commodity in a graphical manner. There are various different types of charts. The simplest one is the line chart. Another very poplar type is the candlestick chart and many traders still have a preference for the bar chart.
One of the main advantages of making use of a charting package is that it makes it so easy to see at a glance when a particular technical indicator is generating a trade signal. For example, if your trading system involves buying a market instrument when the price goes above the 3 week average, a good charting package will make it very easy to spot when that happens.
Another important feature of most good technical analysis packages is the ability to back test a trading system. If you get a bright idea and you want to see how it would have fared in real life, you can back test it on historical data with this feature.
Optimisation is the process whereby the trader fine-tunes his trading system using historical data to try and find the optimum solution for real life circumstances. The danger of over-optimising a system is that it will work perfectly on a given historical set of data, but since the past seldom repeats itself in exactly the same way, the system might not work at all in the future.
Your technical analysis software should have the ability to import a live data feed. That simply means that it should be able to connect to a provider of this information and download prices in real time as they go up and down. Especially for a day trader this is extremely important.
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